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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Publishing details of deliberate tax defaulters: The publication questions: Question 3 - Was this relevant penalty found as a consequence of an investigation: Examples of single and multiple investigations

We can only publish a person’s details if we can answer ‘yes’ to all five publication questions at CH190620.

Example 1 - one investigation

HMRC starts a S9A TMA70 enquiry into the Self Assessment return of a sole trader. During the course of the enquiry the compliance officer discovers that the trader has deliberately understated sales. This results in an underpayment of income tax for 5 years up to and including the year under enquiry. The understated sales mean that the trader has understated the VAT liability. The SA compliance officer and a VAT-specialist colleague subsequently work together. They work out the tax loss over both heads of duty for the 5 year period. The person has incurred relevant penalties.

Example 1 shows one investigation. Our enquiries started from one source and then extended to two different taxes because the default discovered resulted in understatements in two different tax regimes. The investigators help each other to the extent that neither officer can establish the full liability without sharing information.

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Example 2 - two separate investigations

It is reported to HMRC that a trader is engaged in ‘tax fraud’. Risk and Intelligence Service risk assesses the case and identifies the need to look into the trader’s SA returns, VAT returns and PAYE returns. A cross-tax specialist officer looks into the SA and VAT returns as a single process. A PAYE specialist colleague examines the PAYE aspects. The case manager believes that there will be no impact on the income tax and VAT aspects from the PAYE audit, and gives permission from the start to the PAYE compliance officer to work that aspect of the case independently, and to settle the PAYE aspects as quickly as possible. After the PAYE aspects are settled, the income tax and VAT aspects are settled together.

Example 2 shows two separate investigations. Although the PAYE compliance check came from the same risk assessment process as the SA and VAT check, it is separate from the VAT and income tax enquiry. The PAYE check and the SA and VAT check do not require help from each other, the information gathered does not overlap and the enquiries are not inter-dependent. They are separate investigations.

If information had been shared between the PAYE review and the other strands of enquiry so that related facts from each strand fed into the process of finding the relevant penalties, those penalties would have been found from one investigation.

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Example 3 - one investigation

An Excise officer visiting a public house finds that the amusement machine licence displayed on the premises is counterfeit. The officer tells the VAT risk manager about the fraudulent document. A VAT assurance visit is made and finds some false VAT invoices and that the trader has deliberately under-declared machine takings. The findings also mean that the trader’s SA returns contained deliberate inaccuracies. The trader is found to have incurred relevant penalties under FA08/Sch41(1) for deliberately failing to licence the amusement machines and under FA07/Sch24(1) for giving HMRC VAT and SA returns containing deliberate inaccuracies.

Example 3 shows one investigation. HMRC enquiries started from one source and then extended to a different tax because the information gathered about the false licence helped the VAT assurance officer to find the false VAT invoices and the under-declared machine takings.

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Example 4 - two separate investigations

HMRC starts a S9A TMA70 enquiry into the Self Assessment return of a sole trader. During the course of the enquiry, it becomes clear to the compliance officer that the trader has deliberately understated sales resulting in an underpayment of income tax for the tax year under enquiry. Entirely separately, a VAT-specialist colleague checks the most recent VAT return and discovers a deliberate understatement of VAT for the period. Each officer concludes their check entirely independently of the other. Each finds that a relevant penalty has been incurred. It subsequently becomes clear to someone in HMRC that concurrent compliance checks had been carried out by the two officers.

Example 4 shows two separate investigations. That is because neither investigation is ‘related’ to the other, because neither ‘helps’ the other and, therefore, the two enquiries are not inter-dependent at any point.

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Example 5 - one investigation

HMRC starts a S9A TMA70 enquiry into the Self Assessment return of a sole trader. During the course of the enquiry, the compliance officer comes to suspect that the trader has deliberately understated sales resulting in an underpayment of income tax for 5 years up to and including the year under enquiry. Entirely separately, a VAT-specialist colleague checks the most recent VAT return and discovers deliberate overstatements of VAT input tax stretching back for 5 years. At this point the VAT specialist contacts the income tax specialist to tell him of a potential income tax risk. From that point, they work together to bring their checks to a close in a coordinated way. The VAT specialist takes into account the understated sales in calculating the potential lost revenue (PLR) for the deliberate inaccuracies in the VAT returns and the officer dealing with the SA returns takes account of the impact on the trading profit of the omitted sales and the overstatement of VAT input tax. They assess relevant penalties for all of the defaults.

Example 5 is one investigation from which it is found that the person has incurred SA and VAT relevant penalties even though it was made up of compliance checks that began as separate investigations.

The facts gathered by the separate strands of enquiry are merged together and all the facts help to calculate the understated sales and the overstated VAT input tax.